A123′s Failure and the History of Government in the Auto Industry

Republican presidential candidate Mitt Romney didn’t use the collapse of federally-subsidized battery maker A123 Systems Inc. as a talking point in last night’s debate, to the relief of electric car advocates. That doesn’t solve the real problem underlying the company’s collapse. That will take science.

A123 is just one in a long line of ventures and big auto company R&D programs that have benefited from the periodic fits of enthusiasm in Washington, D.C. for weaning transportation off petroleum.

As Obama administration officials hastened to point out in the aftermath of A123’s bankruptcy filing Tuesday, the company got $6 million in subsidies from the administration of President George W. Bush. Before Bush, the Clinton Administration, through it’s Partnership for New Generation Vehicles, subsidized efforts by Detroit’s auto makers to develop 80 miles per gallon family sedans.

The Detroit companies produced prototypes that appeared at auto shows, but not in showrooms. Japan’s Toyota Motor Corp. took the PNGV’s idea and built the first of its successful line of Prius hybrids.

When it comes to electric cars, the auto industry and Washington, D.C. have evolved certain rituals. Policy makers and politicians get worked up about America’s consumption of oil. Auto makers respond by wheeling out gee-whiz prototypes of emission-free cars. They point out that the technologies on display may work in a lab, but are too fragile or expensive for a consumer automobile.

Federal officials offer subsidies for the needed R & D. A few years later, the cycle repeats because the scientific challenges bedeviling battery technology didn’t get solved.

Comments (5 of 5)

Technologies such as those underlying A123 are interesting, but need to be nurtured, when appropriate, by the private sector and agencies like DARPA. Broader government involvement is at best premature, and at worst, pure corruption & stupidity. When these programs were hinted at during the 2008 campaign, experienced tech people like me all said how difficult it is to pick winning technology and business models, and that government involvement was unlikely to yield ANYTHING of value. No evidence yet that we were wrong.

11:19 pm October 18, 2012

H H A PREM wrote :

utter nonsense is A123 the only company that failed d.uring this time ? I bet 100s of companies with or without govt subsidies failed during this time . fools with a political agenda write the same crap every day . Go look at how this country has no real education system to speak of . how it has become a prison state run by republican judges and prosecutors . how hundreds of innocents are imprisoned and put to death here , write about the real problems . it is not govt subsidies that made A123 fail . then boeing lockheed and all the defice contractors should be dead too . their technology did not sell pure and simple

12:53 pm October 18, 2012

A123 Insider wrote :

“A123 can fail at any time, employees already gave up hope and no hope for Wanxiang take-over.”
Found this at glassdoor, posted five weeks ago

Current Employee in Livonia, MI – Reviewed 5 weeks ago
Pros – 1). Get paid while you are not doing that mich work, good benefits.
2). Learning new things from other smart people!
Cons – 1). Company is like a victim whose heart was just ripped out fresh by Lazard capital, it is still beating in the hand of the ripper and the brain can fuction for another 30 sec, but death is imminent.
2).Company solicited buy-out from every car company, every energy company and every major conglomerates, but they all turn it down due to ZERO hope of a commercial success.
3). Totally worthless stock options.
4). Technology is wonderful technically, but the cost is way too high.
5). Incompetent managers, and still audacious enough to demand 12 month pay upon termination by the new owner.
6). Quality control is too difficult, leads to very high cost per kwh. (>$1500/Kwh)
7). Folks from Ann Arbor and R&D headquarter also felt as bad as us.
Advice to Senior Management – We all know any new owner will terminate you the second this transaction is over, but that day will never come, because there is no realistic hope A123 will be on NASDAQ NEXT YEAR (requirement for take-over)), CFIUS will kill it and Wanxiang will be drowned by the spit from politicians in an election year.